Plan for Exit 2024

[Exit 2024]

Hello everyone!!!
I have been lurker here for quite some time and finally decided to register and introduce myself

We are family of 3 with child currently in college (3 more years to go).
Both husband and wife are age 46 and actively planning to exit workforce no later then July 2024 - age 55.

Finding this wonderful forum was a blessing for us - we finally think that we have the target and the plan

We are both employed by megacorp and make together about $250k.
We have records of all our spendings in Quicken going back to 1999 - so have pretty good idea what we really need.
Below is our details - hope to solicit some feedback

Spending plan - very rough numbers and represent worst case scenario by todays assesment

Living expenses including some travel - $50k/year (has some fluff included)
Healthcare for 2 - $20k/year (apprised at local exchange for age 55, added 30% inflation, no subsidy)
Taxes - $20k/year
Total - $90k (or less)

Net worth target - looking at $3mil (is that even realistic ? )
That will include RE that will be paid off - about $300k
Investable assets - $ 2.7mil or 30 x spending, WR ~3.3% (too conservative? )
We are in good health and have relatives living into their late 90s

Current state as of 7/31/2015
Equity in RE - $211k

Taxable - $32k
401(k)s - $385k
Roth IRAs - $133k
I-Bonds - $41k
HSAs - $61k

ESPP - $8k (we cash it out every 3 months)

Cash - $41k

Total - $912k

We are really hoping to join 2 comma club by end of the year, but that will require some market cooperation also

I plan to use this thread to post updates on our way to exit 2024 and ask questions as they will arise

Thanks for reading and looking forward to be part of this amazing community

 

[Terryjm51]

Welcome !
Great place to learn.


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[Katiek]

Welcome! Personally I don't think 3.3 WR is too conservative, but I tend to be pretty conservative.

 

[FreeBear]

Welcome Exit!

I'm glad you guys are planning for ER in your 50's. It seems like that is a time by which many career fizzle out or grow stale. Regardless of when you retire, developing FI will give you great options. Congrats on your strong incomes and long term expense tracking. Wish I did as well on both accounts

Several thoughts:
- How are you planning to finance from your mid 50's to 59 1/2? Seems like most of your current stash is tied up in 401k/IRA or RE. Are you planning 72t (substantially equal early distributions) to avoid early withdrawal penalties?

- What is your savings rate? This could be critical to get anywhere close to your 3M target in only 10 years. This seems like an aggressive (and wonderful!) goal that would probably require strong savings, short of a market "miracle". To me a 10 year time horizon isn't so long that I'd be comfortable with super aggressive investing plan, especially the last 3-5 yrs.

- Why do you hold so much in your HSA? Reduced tax bite?

- Estimated taxes seem high compared to projected living expenses + healthcare?

- Strongly recommend playing around with Firecalc retirement $$ planner instead of rules of thumb like 4% or 3% SWR. It gives you a better feel for the nitty-gritty details and levels of risk.

- It's a good time to seriously consider how much you plan to leave in your estate when you're both gone. Not always a fun topic, but this is closely tied to how much you need to save to get out.

Good luck!
FB

 

[wingfooted]

Most folks here would back out real estate from the retirement calculation as you have to live somewhere. Thus the WR calculation is based on investable net worth, i.e. Assets that can be invested in Roths, IRA's and after tax brokerage.

If you consider investable net worth, then getting from $0.7MM to $3MM is quite a stretch.

The good news is that you have time to make a course correction, which in my mind would mean one or more of the following:

Going some years past age 55 before retirement
Lowering your costs
Accepting higher withdrawal risk
Big raises, stock options, bonuses at work or an even higher paying gig







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[Golden sunsets]

It does seem as though your investable assets at only $700,000 +/- represent a low number compared to your combined salaries. Where has all of the extra cash been going above your expenses. Also if you are looking to get to 2.7 million in ten years your expenses will have grown at the rate of inflation so that your SWR will be higher unless you're expressing your investable assets in today's dollars as well, which would make your intended portfolio that much higher than 2.7 and thus harder to achieve. Having said that there seems to be a lot of margin to sock away more money in the future than you have in the past. I assume that your taxes are much higher now then they will be once you RE but your healthcare expenses must be a lot lower now than you assume they will be once RE'd so why aren't you able to put aside 100,000+/yr for the next 10 years?

 

[Exit 2024]

Thanks everyone for warm welcome!
Appreciate all the comments and questions, will try to answer later today in more details.

One point about RE- that a little bit more complicated then just primary residence, it also includes condo that our child currently lives in. We did not decide what to do with it going forward (after her graduation) it could be sold or rented for income. It is also will be paid off in about 12 month, and accounts for $130k in that $300k RE number.
Reason to combine house and condo together is that we may move at ER. Those would be the money to buy us new home (on top of money from selling current house) - still too fluid to make better plans.
Basically if that will not happen and if we will stay at current house we will have extra money from sale or from rent (that should help with inflation as was mentioned above)

Currently we do count all RE in our NW as we are aggressively paying mortgages off, but in our estimate for $90k/year and 3.3% WR we actually use $2.7 mil as base, so that does not include any RE.

 

[Exit 2024]

Great place to learn.

+100, that is an excellent resource and community and I probably saw only small part of what it has to offer

Personally I don't think 3.3 WR is too conservative, but I tend to be pretty conservative.

Thanks !!! We plan to keep it as our target for now - time will tell if that is good number

- How are you planning to finance from your mid 50's to 59 1/2? Seems like most of your current stash is tied up in 401k/IRA or RE. Are you planning 72t (substantially equal early distributions) to avoid early withdrawal penalties?

Main priority was to fill out all possible tax advantaged spaces first, especially 401k as we knew that HCE limits are coming. 2015 is the first year when we both are VERY limited to what we can put in 401k Now all extras go to mortgages. We plan to bump up our taxable savings as soon as we done with mortgages and child is out of the college - all in about 3-4 years.

- What is your savings rate? This could be critical to get anywhere close to your 3M target in only 10 years. This seems like an aggressive (and wonderful!) goal that would probably require strong savings, short of a market "miracle". To me a 10 year time horizon isn't so long that I'd be comfortable with super aggressive investing plan, especially the last 3-5 yrs.

I am not sure how to calculate savings rate %, here are details for 2014:

Gross income from w*rk - $258k (includes W2 earnings on ESPP, does not include 401k match)
Benefits taken out of the paychecks - $5k (does not include any savings)
Total Income taxes for the year (after small refund) - $69k federal, state, FICA, local

Saved cash - $14k
Saved in investments accounts - $65k (includes $7k match, does not include any dividends or growth)
Paid down RE - $32k (principal)

What base I would use? Do I include match in the base and savings?

- Why do you hold so much in your HSA? Reduced tax bite?

Yes, trying to manage tax bite.
We maxed out HSAs since 2006, never took anything out and consider that as additional retirement savings vehicle.
All moved to HSAbank and in cash currently, plan is to buy Vanguard ETFs.

- Estimated taxes seem high compared to projected living expenses + healthcare?

Good point, I may need to re-look at that amount, our current tax bill is kind of large, really afraid to underestimate it for ER. That amount also include RE taxes.

- Strongly recommend playing around with Firecalc retirement $$ planner instead of rules of thumb like 4% or 3% SWR. It gives you a better feel for the nitty-gritty details and levels of risk.

That will be on my list of things to do, thanks for suggestion.

- It's a good time to seriously consider how much you plan to leave in your estate when you're both gone. Not always a fun topic, but this is closely tied to how much you need to save to get out.

We have one child, she will inherit all leftovers (if any). At this point we are more concerned about possibility to outlive our savings and become burden on her than save too much.

If you consider investable net worth, then getting from $0.7MM to $3MM is quite a stretch.

It is more like getting from $0.7MM to $2.7MM without RE or from $0.9MM to $3MM including RE.
Totally agree on the stretch though but still will attempt to get there on time.
Or worst case we will have to go for Plan B: part time ER at age 55.

The good news is that you have time to make a course correction, which in my mind would mean one or more of the following:

Going some years past age 55 before retirement
Lowering your costs
Accepting higher withdrawal risk
Big raises, stock options, bonuses at work or an even higher paying gig

That is exactly our thought, although we are still hoping for the best

It does seem as though your investable assets at only $700,000 +/- represent a low number compared to your combined salaries. Where has all of the extra cash been going above your expenses.

We did not have such income for a long time yet to be able fully capitalize on it, and taxes do have a bite in recent years.
We also helping elderly relative in the tune of 8-10k per year, not a huge amount but that adds up over time.
2000 - $45K one income , NW $15k
2005 - $110k two incomes,NW $62k
2010 - $190k two incomes, NW $351k
2015 - $250-$260 estimated two incomes, NW 912K as of July

Also if you are looking to get to 2.7 million in ten years your expenses will have grown at the rate of inflation so that your SWR will be higher unless you're expressing your investable assets in today's dollars as well, which would make your intended portfolio that much higher than 2.7 and thus harder to achieve.

That is an excellent point, need to think about it more we have condo potentially to sell or rent to aid that $90k/year inflation erosion but still may need a better plan

Having said that there seems to be a lot of margin to sock away more money in the future than you have in the past. I assume that your taxes are much higher now then they will be once you RE but your healthcare expenses must be a lot lower now than you assume they will be once RE'd so why aren't you able to put aside 100,000+/yr for the next 10 years?

We should be able to, thanks for encouragement !!!
Challenge is that starting this year we are handicapped by HCE limits on both 401k, that will result in extra 8-10k in taxes. On the bright side we should have child out of our payroll in 3 years if all goes as planned - that will boost our savings.
of cause there is always that "if"

That was very interesting for me to look up all the numbers and see our progress over years without a plan in place or target to meet. Now with additional motivation of FIRE we are looking forward to what we will be able to achieve in next 9 years.

 

[Sycamore]

For a potential 40 -45 year retirement horizon a 3.3% withdrawal rate might not be overly conservative. I'm planning on a 2.8 - 3.0% withdrawal rate for a similar time frame. While this might be overly cautious we won't know for sure until the last 15 years or so, likely to late to go back to work.

During the next ten years do you think you could save (include 401k match) 45 - 50% of your after tax income? With an aggressive ten year savings rate and some decent market returns you might get close to your goal.

 

[Exit 2024]

For a potential 40 -45 year retirement horizon a 3.3% withdrawal rate might not be overly conservative. I'm planning on a 2.8 - 3.0% withdrawal rate for a similar time frame. While this might be overly cautious we won't know for sure until the last 15 years or so, likely to late to go back to work.

I hear you! 45 years is a very long time (it is about my current age!!!)
On the other hand there is additional income from SS that we do not count on currently. That by itself should be enough to breach any possible gaps due to long living, but question remains if it will be there in 20 years from now and if yes- how much we are at the tail of baby boomers, by the time we will be eligible I think there will be HUGE cohort of retirees in that country draining all programs dry.

During the next ten years do you think you could save (include 401k match) 45 - 50% of your after tax income? With an aggressive ten year savings rate and some decent market returns you might get close to your goal.

Looking at the recent numbers I think I can say yes, 50% or more actually if we are talking about gross pay plus match less taxes.

 

[FreeBear]

Hi Exit 2024,

Thanks for the detailed reply to my questions. I've been ER'd 6 months, but I'm somehow still very busy. The difference now is that I'm doing stuff I love to do, but it's all very time consuming...

Anyway, from your answers, you are currently saving about $100K+ per year. So just on this basis, you should be at your target in about a decade, assuming contributions at least grow with inflation and also your investments keep up with inflation. Personally, I think this is reasonably safe bet, although no guarantees This is especially the case since you are targeting a SWR in the well below 4%.

More importantly, based on these somewhat detailed discussions, I think you have the brains and attention to detail to figure this stuff out with some research and thought. You are asking the right questions on the financial side, so I confident you will find the right answers for your family.

As a suggestion, you and DW may want to start thinking about and actually living some of the life you want now, well before ER. After finances, which you seem to have under control, the biggest challenges are "what will you all day" and how will your self esteem hold up when you guys are now longer pulling in $$$$. As for DW and I, we had been pursuing our artistic and outdoors passions for decades, so we ER'd when we hit our financials. Good luck, hope to hear of your progress!

FB

 

[Exit 2024]

FreeBear,
Thanks for your comments and congratulations on your ER !!!!
It is soo encouraging to see people are actually getting it done. Looking forward to read more, learn more and get it done also

About living some of ER now- we do have a lot of hobbies but not enough time for them. Hoping FIRE will allow us to enjoy that more and have some more time for travel. As we will get closer to the Exit 2024 - we may need think more about "what we will do all day every day", but at that point it does not look like a huge problem for us

 

[Markola]

I am not sure how to calculate savings rate %

One quick and dirty way is:

Add up all your annual savings:
Pretax contributions
Employer match
Post-tax account contributions
Principal paid on mortgage
HSA account contribution
Education account contribution
Every other kind of savings you are setting aside


Divide the total above by your annual take-home pay to get the savings rate %.


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[Exit 2024]

Markola, thanks for the pointer!
Let see if I got it right for 2014 numbers from my post above :
Total saved 14k cash+ 65k investments and match+ 32k RE= 111k
Denominator 258k earned+7k match - 69k taxes= 196k
Is that correct take home pay? Do I need to substract benefits taken out of the paycheck also? It was about 5k

Saving rate is 111/196= 56.6% does that sound right? It is way higher than I thought it would be. If I substract benefits - % would go up to 58.1
For 2015 I expect our saving rate to be lower due to 401k limitations - still will try to get over 50% mark by the same calculation.

 

[Markola]

For take home pay, I simply take what spendable cash finally lands in my checking account in a normal month and multiply that by 12.

There are different ways to calculate one's savings rate but they all seem to say ours, like yours, is in the 50-60% range, so I use this one since it simple and I can remember it.

Good job achieving that high rate! You are officially unintelligible to 99.5 % of your fellow Americans.


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[Markola]

If you are the detailed type, here's another way: http://www.mrmoneymustache.com/2015/01/26/calculating-net-worth/


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[Exit 2024]

Markola, thanks again, looks like I used the same approach as in the post that you linked. Only difference that I did not calculate spending to substruct from income but rather used exact number for how much we put into different accounts during the year (quicken rocks)

You are officially unintelligible to 99.5 % of your fellow Americans.

That made me laugh

 

[Exit 2024]

Q3 2015 closed, posting update on our progress, or almost no progress.

Compare to June we +$2k,
compare to the July numbers (that I started this thread with) we are down 24k.
We paid RE down by a lot in July and Market went down in August and September. So that practically evened out in our NW.
Found myself not upset about it at all and considered whole pull back as buying opportunity.
Saying that we made full Roth IRA contributions for 2015, and have been able to invest more than half of HSA funds into VIG (got lucky on "freaky Monday" when ETFs crushed and got one lot at $56.62)

35 more Qs to go

 

[Exit 2024]

Looks like October was a good month for our portfolio and our net worth not only crossed $900k again but also made all time high at $933k
In the mean time we have been going through annual enrollment process at both employers and there will be some changes in our insurances and HSAs next year. Looking at that I also reviewed all of our HSAs and tried to figure out how to maximize returns.

Here what we have :
His at HSA Bank with linked TD Ameritrade account
His at employer - will not be offered in 2016
Hers at HSA Bank with linked TD Ameritrade account
Hers at employer - gets $1080/year employer match for family plan

Our ongoing strategy was to contribute through payroll and collect match in the employer sponsored HSAs, then once per year rollover funds into HSA Bank accounts. There we kept min required to waive monthly fees ($5k for 2015) and rest was transferred to brokerage account where we started to buy VIG.

Being very averse to paying any fees on any accounts I was thinking that keeping $5k in each HSA is a right thing to do. To be clear we are talking about $5.5/month/account or $66/year/account.
This month while reviewing our accounts I suddenly realized that leaving $60 in HSA and investing $4940 in VIG may get us better outcome

For $4940 at current price we can buy about 63 shares, for last 12 month VIG distributed $1.802/share in dividends, so for 63 shares I would get $113.56, that is $47.56 more than annual fee and I expect dividends to be even higher in the next 12 months. Interest earned on that 5k was only ~$10/per year.
Not taking in consideration any price fluctuation of ETF itself looks like I was missing on some gains over multiple years in both accounts
Is that correct? Is there anything else that I need to consider before moving balances to VIG?

 

[Exit 2024]

Hello 2016 !!!
We finished year with reasonably good numbers but it was not good enough to let us join 2 comma club yet will keep pushing it this year, although looking at the markets so far it may be up-heal battle

Here is our Q4 results and we have 34 Qs to go

 

[Exit 2024]

On top of our results wanted to share some revelation of mine, that I got after looking at our year end paychecks.

I was trying to compare 2015 to 2014 in gross income and as expected we earned together $16k more - great!!!

But then I looked at how much taxes were taken out - and here was my revelation - $16k more then last year

How that even possible?
Did I miscalculate our withholding by that much ?
Did I miss something very important?
I knew our tax bill will increase due to HCE limits on 401k contributions but did not expect 100% marginal tax rate

After quick and dirty spreadsheet number-crunching here is what happened:
we earned $16k more and also contributed $24k less to 401k in 2015 - total taxable income increased by $40k, our marginal tax rate including federal, state, local and partial FICA is very close to 40%, and that 40% on $40k is indeed $16k extra in overall the tax bill

Now I am looking to buy 2015 tax software to get to more accurate figures, it may not look so bad if we get some refunds but I do not expect much anyways

 

[2017ish]

Exit, that result sounds quite likely.

Time to lobby employer(s) for a safeharbor plan so that HCE/anti-discrimination testing doesn't hit you... Both of us have always been in safeharbored plans, which has been a lifesaver.

 

[Exit 2024]

Exit, that result sounds quite likely.

Time to lobby employer(s) for a safeharbor plan so that HCE/anti-discrimination testing doesn't hit you... Both of us have always been in safeharbored plans, which has been a lifesaver.

2017ish, I am all for safe harbor lobbying but my employer for example have low 401k participation rate and 50k employees, I think implementing it will cost them quite a bit of change.
do I understand it correctly that employer will need to make non-elective contribution to all?

 

[Katiek]

Thanks for the update and congrats on your progress!

 

[2017ish]

2017ish, I am all for safe harbor lobbying but my employer for example have low 401k participation rate and 50k employees, I think implementing it will cost them quite a bit of change.
do I understand it correctly that employer will need to make non-elective contribution to all?

That is one option (3% to all eligible employees). Employer can also make a 4% matching on everyone who participates. Both are immediately vested. The linked website from which I take the following quote does a good job of explaining:

Q: What is required from me, the employer?
A: Employers may choose between two Safe Harbor contribution options. These accounts are 100% vested and must be funded on a per-pay-period basis.

An employer matching contribution of 100% of employee elective contributions (both pre-tax and Roth) on the first 4%, 5%, or 6% of compensation, OR
An employer non-elective contribution of 3% of compensation for all eligible employees.

https://www.sharebuilder401k.com/safe-harbor.aspx

Given your situation, I suspect that the 100% match (up to 4% comp.) for all employees would be the most cost effective for your employer. But, my experience has been with much smaller entities, and the plan for which I was a trustee/fiduciary went the other way to ensure that everyone had at least something in their retirement pot....